Stephen Harper's embarrassing behaviour regarding the crisis in Ukraine -- demonizing Vladimir Putin and upping the rhetoric -- must be welcomed in the U.S. which created the crisis in the first place and apparently believes it still has something to gain by isolating Russia. But it is not clear that Harper even realizes -- or cares -- what the larger game is. And that game may include a Russia-driven shift in global currency allegiance that could devastate the economies of the U.S. and Canada.

....

It is arguable that push for the petroruble is a global issue many times more important to the U.S. than anything that happens in the Ukraine, but American efforts to isolate Russia is actually accelerating the process. The desire is also driving Russia to look to the east instead of Europe for its future prosperity -- aligning with China as both a market for its gas and a partner in undermining the petrodollar. China is already headed there. Its yuan is the second most used currency, ahead of the euro, in international trade settlements. China recently "opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt."

The emerging economies of Brazil, Russia, India, China and South Africa are grouped under the acronym BRICS. According to journalist Peter Koenig: "Other countries, especially the BRICS and BRICS-associates (BRICSA), may soon follow suit and join forces with Russia, abandoning the `petrodollar' as trading unit for oil and gas. This could amount to tens of trillions in loss for demand of petrodollars per year." In which case, "leaving an important dent in the U.S. economy would be an understatement," says Koenig. "Along with the new BRICS(A) currency will come a new international payment settlement system, replacing the SWIFT and IBAN exchanges, thereby breaking the hegemony of... the Bank for International Settlements (BIS) in Basle.

The prospect of the U.S. dollar losing its status as the world's trading currency is far and away the greatest threat to U.S. hegemony in the world as it would turn the country's $17-trillion (not counting unfunded liabilities) virtual debt problem into a real one. Until now, the huge external demand for U.S. dollars has allowed it to accumulate enormous debts without defaulting. With Russia, China and the rest of the BRICS countries moving in this direction, the U.S is panic-stricken. It used to be said that the U.S. dollar was backed by the Pentagon. Indeed, plans to decouple from the dollar was a common feature of three countries that experienced the wrath of U.S. foreign policy and military intervention. Libya's Moammar Gadhafi was planning a gold-standard currency for all of Africa; Iraq was planning to quit using the dollar for its oil exports, as was Iran. Sanctions against the latter had as much to do with this plan as any other issue.

I can see that the development of an alternate settlement system could virtually destroy the ability of the USA to conduct economic warfare against other countries. This would be a blow to US hegemony and to the elites who benefit from that status.

But Russia, China, Brazil and India are countries of a whole different order and out of reach of the Pentagon's threats. There is virtually nothing the U.S. can do to stop this movement, provoked in part by the massive printing of money in repeated "quantitative easings" and accelerated by NATO's adventurism.

If that were not a big enough headache for the U.S., Russia is well placed to detach Germany from the EU and U.S. efforts to isolate Russia. While Russia will suffer economically in the short term from sanctions, the longer term looks brighter. At the same time that BRICSA is planning its new international payment system, China and Germany are negotiating another initiative that guarantees Russia a prominent role in one of the world's most ambitious economic development schemes: the New Silk Road linking China and Europe. This initiative is intended to provide enormous impetus for development of western China and everything from there to Germany.

Says Koenig: "Germany, the economic driver of Europe -- the world's fourth largest economy (US$ 3.6 trillion GDP) -- on the western end of the new trading axis, will be like a giant magnet, attracting other European trading partners of Germany's to the New Silk Road. What looks like a future gain for Russia and China, also bringing about security and stability, would be a lethal loss for Washington."

I am less clear as to how this would be a problem for the average US citizen and believe that it could be a very good thing. But first US citizens would have to wrest control of the government away from the existing elites.

I have been trying to understand just how all of the dire threats the USA is making towards Russia might actually be implemented. Russia's foreign trade with the USA is very small and Russia's economy is not vulnerable to anything over which the USA has monopoly control except, currently, for the international payments settling system. What am I missing?

Melo's link, which first led me to this article in Counterpunch, was in Real Economics, Techno's blog. Techno comments favorably on Murray Dobbins' journalism and professes to have long been familiar with him.

Well, while I certainly prefer greater comity in the way we treat one another on ET, and treating the WaPo as a proxy for the US newspaper 'quality press', six years on I find Techno's judgements, if not his tone, to be pretty much justified. And there is the fact that he lives in Minnesota, where Canada is a neighbor. He did step in it big time in that incident, but mostly in the way of personal interaction. Personally, I miss his viewpoints and contributions on ET and I am sorry the whole incident occurred, for ET, Techno and Stormy.

I miss his viewpoints and contributions on ET and I am sorry the whole incident occurred, for ET, Techno and Stormy

Me too. But as far as I'm concerned stormy was right in saying that the WaPo could produce good journalism, and an article wasn't to be rejected on a scan of the first four paragraphs. As for his recommendation of Asia Times and Deutsche Welle, hmm.

True enough, but where I agree with Techno is on the importance of what is ignored and/or minimized. That is why I read and consider articles on naked capitalism and other blogs as well as Counterpunch and Global Research and why I am not put off by questionable tone. After all, I am reading mainstream press not so much for their take on news but for what can be gleaned from the coverage despite the spin and considering what they will never cover. Alternative media may have greater frequency of poor sourcing but the biggest problem, to me is misrepresentation of facts, framing and improper contextualization and, especially, deference to received opinion from the powerful. The latter has particularly driven me crazy during the Ukraine episode to an extent I have not felt since the run-up to the invasion of Iraq.

I hear Ukraine CW parroted daily by radio and TV here in France, and I know it's arrant bullshit. I look at Russian sources, and find a pile of arrant bullshit too. In both cases, it's deference to the "party line". When I see stuff from Counterpunch or above all Global Research I also find heaps of arrant bullshit, in a kind of anti-party-line mirror image of the former. Not only is there poor sourcing, but often also "misrepresentation of facts, framing and improper contextualization", and above all facile speculation passed off for expert geopolitical knowledge.

I don't find these sources help reach informed understanding of events. (I repeat, if Dobbin's speculations came to us from the Moustache after a chat with his taxi driver, we'd be ROTFLMAO). It's not that I'm Zen Master in understanding events (I want to heave a brick through the screen too), but I don't get any relief from the well-worn "alternative" groove.

'Panic-stricken' may not be the best choice of phrases, but the USA is now caught in a dilemma. Use of overwhelming force is not an acceptable option, repudiating the actions of the neo-cons is not acceptable for domestic political reasons and yet there remains the need, for domestic political reasons, to appear strong. So we play the economic sanctions card. But the world is changing and the effects of that card are diminishing. Worse use of sanctions and economic warfare will push forward in time ongoing developments which will make effective sanctions against Russia largely useless and counterproductive. That is why I consider that Obama having allowed what the USA did in the Ukraine over the last few years to have been amazingly shortsighted.

I've no problem with the word, but rather with the suggestion that the panic is because they realise that this will lead to the dollar ceasing to be the reserve currency. It looks more like panic because they can't force Putin to do what they want in Ukraine.

"Other countries, especially the BRICS and BRICS-associates (BRICSA), may soon follow suit and join forces with Russia, abandoning the `petrodollar' as trading unit for oil and gas. This could amount to tens of trillions in loss for demand of petrodollars per year"

To put it bluntly: I don't think this true.

BRICS has not been so far a functional cooperation.

>China recently "opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt."<

I hope he is talking about London (India) and Frankfurt (Brasil) - otherwise...

LONDON--Britain moved a step closer Wednesday to cementing its status as the Western hub for financing and trade in the Chinese yuan with an agreement to set up the first official clearing service for the currency outside Asia.

Chancellor George Osborne said the Bank of England and the People's Bank of China 601988.SH +0.38% will sign a memorandum of agreement on Monday to cover how they will share in the operations, with a clearing bank to be named later.

The plan, which Mr. Osborne had flagged earlier this year, is the latest coup for London in its efforts to facilitate trade and investment in the Chinese currency and attract more business from banks, companies and investors. The new service means that yuan transactions can be settled in the U.K. capital, instead of having to go through agent banks in mainland China or the Bank of China in Hong Kong. Singapore and Taiwan also offer clearing services through Chinese bank branches.

Germany's Bundesbank and the People's Bank of China agreed to cooperate in the clearing and settling of payments in renminbi, paving the way for Frankfurt to corner a share of the offshore market.

The central banks signed a memorandum of understanding in Berlin today, when Chinese President Xi Jinping met German Chancellor Angela Merkel, the Frankfurt-based Bundesbank said in an e-mailed statement.

Germany's financial capital prevailed over Paris and Luxembourg in a euro-area race to win trade in renminbi, which overtook the euro to become the second-most used currency in global trade finance in October, according to the Society for Worldwide Interbank Financial Telecommunication. The U.K. Treasury said on March 26 that the Bank of England would sign an initial agreement with the PBOC on March 31 to clear and settle yuan transactions in London.(My bold)

Perhaps the tense of the verb should be present imperfect, as in 'China is opening...'. But, regardless of actions in London or Frankfort, Russia has been settling ruble/yuan trades directly with China. They can also settle trades directly with Iran, and India, should they so choose.

Are US Gen. Breedlove and NATO SG Rasmussen imposing policy on its European members? This seems to be new policy designed by the Obama administration as advocated by former NATO Ambassador Ivo Daalder at the Atlantic Council.

Well, "Fuck the EU" is easy, pretty much mission accomplished at this point. But "Fuck Russia and China and Brazil" may be more than even the mighty hegemon can muster the biggest military in history to enforce.

And all the rallying rhetoric power of "Freeeduuum" has pretty much run out of gas, thanks to a century of repeatedly backing the cruellest dictators around to keep the Korpo-koffers overflowing.

The american military must be apoplectic with frustration, 0-man's speechwriters scraping the Thesaurus for more Orwellian contortions.

Once again one shudders to wonder how McCain/Palin would have played these hands.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

I can see that the development of an alternate settlement system could virtually destroy the ability of the USA to conduct economic warfare against other countries. This would be a blow to US hegemony and to the elites who benefit from that status.

I think we can all see that. The question has been discussed here before, amongst others in connection with Chris Cook's assertions regarding Iran's potential petro-currency change. As in that instance, there is no evidence of anything actually happening.

No evidence in Dobbin's article either. A facile lumping together of the BRICS, as if they agreed and pursued the same agenda. An unlinked reference to "journalist Peter Koenig" (?) who states platitudes that don't back Dobbin's case up one iota. Russia is looking east, Dobbin tells us, but (further on) is ideally placed to detach Germany from Europe and the US. Er, East or West?

If we were reading these airy speculations in the NYT under the Moustache of Understanding byline, we'd be poking fun at them.

afew: 'Russia is looking east, Dobbin tells us, but (further on) is ideally placed to detach Germany from Europe and the US. Er, East or West?'
Well, the assertion is that Russia is shifting its focus for energy sales to China and other Asian countries and that this will make it less dependent on sales to Europe. And it is China that is described as looking west and signing a 'New Silk Road' type agreement with Germany. But Russia's increased trade with China would undermine a potential dollar squeeze by the USA on Russia while an alternate settlement system would make economic sanctions largely irrelevant.

(Global Research) - Added to this is the declaration today by Russia's Press TV - China will re-open the old Silk Road as a new trading route linking Germany, Russia and China, allowing to connect and develop new markets along the road, especially in Central Asia, where this new project will bring economic and political stability, and in Western China provinces,where "New Areas" of development will be created. The first one will be the Lanzhou New Area in China's Northwestern Gansu Province, one of China's poorest regions.

"During his visit to Duisburg, Chinese President Xi Jinping made a master stroke of economic diplomacy that runs directly counter to the Washington neo-conservative faction's effort to bring a new confrontation between NATO and Russia." (press TV, April 6, 2014)

"Using the role of Duisburg as the world's largest inland harbor, an historic transportation hub of Europe and of Germany's Ruhr steel industry center, he proposed that Germany and China cooperate on building a new "economic Silk Road" linking China and Europe. The implications for economic growth across Eurasia are staggering."

Curiously, western media have so far been oblivious to both events. It seems like a desire to extending the falsehood of our western illusion and arrogance - as long as the silence will bear.

Germany, the economic driver of Europe - the world's fourth largest economy (US$ 3.6 trillion GDP) - on the western end of the new trading axis, will be like a giant magnet, attracting other European trading partners of Germany's to the New Silk Road. What looks like a future gain for Russia and China, also bringing about security and stability, would be a lethal loss for Washington.

Peter Koenig is an economist and former World Bank staff. He worked extensively around the world in the fields of environment and water resources. He is the author of Implosion - fiction based on facts and on 30 years of experience around the globe.

Not so. The reason neither the Ruble nor the Yuan is a reserve currency is that neither Russia nor China has enough aircraft carriers to make good on the colonial punitive expeditions that the reserve currency power commits to by virtue of attempting to maintain a major reserve currency.

The current account position is a consequence, not a cause, of the status of your currency.

Jake: 'The current account position is a consequence, not a cause, of the status of your currency.'

This implies that the current position of the US$ as the world reserve currency is even more precarious than Dobbins and Koenig make it to be, as it would be significantly based on perception. Overplaying one's hand when one has a perceived advantage that is greater than the actual advantage is an excellent way to lose that advantage. That could lead to a catastrophic collapse of the value of the US$. Personally, I would prefer a more gradual rebalancing. I suspect so would China, Russia and the rest of the BRICS.

One proven way to alter such developments as these is war. But that, if it escalated, would likely truly usher in a post-apocalyptic new dark age and catastrophic collapse of human life on earth, along with most other life forms. Again, to some it may seem that the problems are now and the consequences are then. May cool heads prevail.

But following ARGeezer's argument, the US$ status as a reserve currency suffered a blow at the hands of Russia in Syria, for instance, where Putin of all people had to rescue Obama from the punitive expedition he was being drawn into by his clients.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

And there is a very big difference between being in effective control of all of the world's settlement systems and having a bifurcated settlement system with one part somewhat smaller but growing and the other larger but diminishing. China and Russia are still both growing and capable of high growth rates, not least because they are not hamstrung by ideologies supportive of 'austerity' and massive internal distributive inefficiencies. China is the second largest economy and growing at 7%+/year and Russia, on the basis of purchasing power parity, is the number five economy and could well again grow at several percent per year, while the nations with which China has signed bilateral trade agreements with settlement in Yuan include Brazil, Russia, India and South Africa for starters.

China is a hot mess. For one thing, there's a massive strike wave that's gone largely unreported by Western media.

This feeds into the second issue, wage inflation. While Europe is staring down deflation, Chinese industry is facing rising wages in industry. In the five years after the economic crisis (2009-2013) Chinese wage in manufacturing have been rising by 15% a year on average. By 2013, annual wages in manufacturing have risen to the equivalent of $6,660. Run that out into the mid 2020s, and the manufacturing wage in China converges with US rates. Of course, Chinese productivity is a fraction that of the US, so the convergence is actually much sooner.

Manufacturing wages, adjusted for Mexico's superior worker productivity, are likely to be 30 percent lower than in China by 2015. China's wages have soared. They were about one-quarter as high as Mexico's in 2000 but are catching up rapidly and will be slightly higher by 2015. And labor productivity remains higher in Mexico, even though the gap is narrowing. The crossover point was 2012, when unit labor costs in China (i.e., wages adjusted for productivity) grew to equal those in Mexico. By 2015, Mexico will be around 29 percent less expensive.

In short, China is in no position to challenge the reserve status of the US dollar. For several years, Chinese central bankers have been eyeing their horde of US dollar reserves with unease. If you or I convert dollars to yuan, it isn't going to change the exchange rate. If Chinese central bankers do. That will lead to a significant devaluation of the US dollar against the yuan. Which both means that Chinese investments in the US lose value relative to China, and that the wage inflation problem escalates. All that an attack on the reserve status of the US dollar would do is hasten the collapse of Chinese industry. Doing that would pop the Chinese real estate bubble, and lead to the collapse of a number of banks.

Again. In short. There is absolutely zero chance that China willing participates in an effort to attack the the dollar.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

China was suppressing wages for a long time - This is a correction, and a needed one. I wouldn't expect those hikes to continue at that pace beyond the point where their productivity and pay get back into balance. Which we will be able to detect because their trade balance starts looking less stupid.

I WOULD expect that this will be the stimulus for a long overdue change in the growth plan for China into one that emphasizes the infrastructure that promotes productivity of its industry and labor force and deals with its environmental problems. And that would be an excellent development. Building quality housing that is affordable to workers and a network of health care facilities to serve that population along with switching out of coal for energy, providing affordable transit to get them from home to work, school and shopping in addition to high speed regional rail and instead of elegant looking structures in vacant cities - to invoke cliches.

Yes, when you turn out to not have quite as much capacity to mount colonial punitive expeditions as your position in the trade system implies, then you will see your terms of trade deteriorate.

But there is some way from seeing your terms of trade deteriorate to losing reserve currency status. Just like there is some way between shedding unprofitable fringe colonies and losing your empire altogether.

That is the whole point I am trying to make, long with the point that an alternative FX settlement system not controlled by the USA will greatly diminish the power of the USA to conduct economic warfare. That system does not yet exist but is clearly developing. It is very unwise to risk accelerating that development just to make the current US administration look strong. If US actions in Ukraine continue on the current course that seems a real danger.

Just because Russia has a current account surplus does not mean that they have no concerns about the use of the current international settlements system as an instrument of economic warfare against them. If the US doesn't want to play nice there is another game with China and the other BRICS that Russia can play. That didn't use to be the case.

"there are not enough Russian bonds." Were investments in Russian bonds seen as secure from US originated currency manipulation and attack any shortage of Russian Bonds could be readily remedied. And if Russia can get internal growth going again at 5%/yr or more for a few years the size of the entire rouble denominated world economy could increase. Already there is a demand for Chinese bonds outside of China. Everyone is seeking yield.

On of the significant uses of eurodollars is for financing development in developing countries. Much of this has been done with eurodollar bonds from The City, or so I learned. But this is only one model. China and Russia could both engage in such development in Africa and Latin America either with bonds or direct financing. But, to me, the most salient characteristic of an international currency is the ability to settle trades in that currency and simply having a trade surplus facilitates that function. I wouldn't be worried about the lack of bonds for rentiers to hold.

I'm not talking about rentiers. The developing countries who use petrodollars for development are usually net exporters (or raw materials). Or, in the case of China, net exporters of manufactured goods. US$ bonds are needed to invest current account surpluses ("recycling of petrodollars").

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

That is how the capital account balances the current account for any nation where the nation with a current account deficit is structurally unable to run a trade surplus, especially the USA. That is the mechanism Varoufakis describes in The Global Minotaur. But it is not necessary for either trade partner to run a deficit if they can both balance their current accounts. They could just trade raw materials for manufactured goods. But FDI by one side is a capital account activity and it too can be repaid in raw materials and/or agricultural goods. Raw materials could also be traded for capital goods so that the country receiving FDI could add value to its exports. The requirement is that Current Account = Capital Account for both countries, by accounting identity. Else, what am I missing?

First, the US has the privilege of being able to run nearly unlimited foreign deficits, because the US is the man with the gun.

Second, currency reserve operations can drive FDI and current account, not just the other way around. If the Chinese central bankers think they have a dragon's hoard of US bonds, then they are delusional. What they have is the accounting shadow of thirty years of tribute paid to the Americans.

Well, I am aware of the power of the USA to finance its overseas empire by simply printing units of the international currency and I recognize the role that military power has played in supporting that function. But China can surely provide US Treasuries to trading partners in need of them from its reserve and that is a positive for them. In addition to an accounting shadow what the Chinese hoard of US financial instruments represents is the price of undervaluing their currency wrt the US$.

Carriers are a significant means of power projection, and so are bases such as on Diego Garcia and in Thailand and Okinawa. But these are of limited utility on the Asian continent from Russia east. So China and Russia will not be feeling constrained except for agricultural production any time soon.

The point I am trying to make in this diary is not that Russia, China and the BRICS are trying to eliminate the USA as a major international power, but rather that they are creating an alternative sphere not controlled directly by the USA, thus giving trade partners a choice.

But only those trade partners which have contiguous land connections to Russia or China.

Which, with the exception of Northern Indochina, are basically already in either Russia's or China's sphere of influence.

This may make it more difficult for the US to pry away Russia's Central Asian colonies. But that was always a half-hearted, opportunistic, and, most importantly, loss-making enterprise for the US anyway.

It is true that US sea power could block Russia and China from conducting trade in large parts of the world. But that would be an overt act of war. It is certainly something to watch for, but I don't think we are very close to that point yet, and certainly not against China. And, were the USA to get into a war with China it could be very dicey for Japan, the Philippines, Singapore, Malaysia, etc. Power over the sea ways can be exercised from air bases as well as from the deck of a carrier. Japan could start having problems importing fossil fuels, for starters. Which way would Vietnam go? How secure would the new US access to Philippine bases be? I sincerely do not want to find out.

Our problems really accelerated when Nixon took us off the gold standard in 1971 to allow the Fed to print unlimited amounts of money, which according to Koenig, was to allow us to pay back our Vietnam War debt. Gold exploded from the pegged $35/oz. to approximately $3-400/oz.

He also doesn't really appear to be a journalist, rather a former WB staffer and fiction writer.

Simply reciting well known facts from recent monetary history hardly makes one a gold bug. Nor does embodying ones understanding of economic history in a work of fiction in an attempt to broaden economic understanding amongst non-specialists.

OK, so he doesn't sound like a gold bug to you, and you think he's a factually authoritative source that Dobbin quotes without reference or link, calling him a "journalist" which he doesn't appear to be.

I think Dobbin is just using him as filler to make it look like he's got some facts to back up his case.

Peter Koenig was a career staff economist at the BIS and I recognized the 'facts' he recited as the same 'facts' I had seen in my Money and Banking Course. The Dobbins article was more of an opinion piece than a news story, but it rang true to me. And it is not hard to throw substantiation around many of the statements. I do not think Koenig is a gold bug, quite the contrary. See the following transcript from Voice of Russia:The chief manipulator of the gold market is the BIS

The return to the gold standard could be a very simple scheme; using a fixed unit of gold vs. a debt ratio close to the one of the highest interested debtor nation. A new gold standard would help Uncle Sam revaluing the dollar and at the same time purging its enormous debt on the rest of the world, mostly on the backs of those countries which have no or limited gold reserves. Many of them are developing countries with natural resources, sought-after by the West - resources that would help pay their skyrocketing debt service.

Most OECD economies with gold reserves - and especially the co-opted Europeans - might go along with the scheme. Mainly, because their economies are at shambles since the 2008 Wall Street / IMF imposed artificial `crises'. Their short-term thinking might see the new gold standard as the salvation for the beaten euro. But what else is there to expect, when the President of the European Central Bank is a former Goldman Sachs executive?

Desirability and possibility - Of course, returning to the gold standard is not desirable, as it would hand over the world's economy and resources to the Western powers and financial mafia. A gold standard is not sustainable. It is vulnerable to the manipulations of those in control of the financial markets. In parallel with the US amassing gold, China, Russia, Germany, Japan - and others - have also bought massively gold in the past decade in preparation for such a potential move by the US.

I do think that the USA would have to be prepared to rebalance its economy so that it has a current account balance or close to it in order to implement such a scheme, else gold might flow rather quickly out of the USA, diminishing the purported eight tons reserve, unless it substantially under valued its currency wrt gold as France did after WW I.

Chinese german relations are good. After all there is a long distance between both countries and they are not burdened by a shared history.

An so politicians can visit and babble some fell good pablum like new economic silk road. And rust belty Duisburg needs a bit of pep talk, sure.

And there is a german strategy to cultivate china as the next big export market. But can you really call the two simple convictions "exports are gooood!" and "china is a big market - let's export" a strategy?

A big market for one, a grand strategy for the other? Is Merkel going to aborgate the agreement to set up Yuan clearing in Frankfort because Russia might incidentally benefit from the rising status of the Yuan as a world reserve currency? I don't think so.

China has the world's second largest economy by domestic product and its relative size is rising. China is a net exporter to the world. Presently China has huge foreign exchange reserves. By way of comparison, after WW II the USA had most of the world's then official reserve currency, gold, and the eurodollar market was created out of US$ that were retained abroad. After the end of gold convertability the US$ retained its status as the key world currency even as exchange rates fluctuated. Traders learned to deal with that volatility using forwards and futures and a series of major currency crosses and minor crosses emerged.

China is now in a position to see the Yuan become a rival to the US$. The chief obstacle has been the lack of a direct FX-Yuan conversion system in non-Asian financial centers. That is changing with China's central bank and government setting up Yuan exchanges in London, Frankfort, Toronto, Vancouver, Taiwan, and Singapore, in addition to China itself and Hong Kong. Additionally, China has been signing bilateral trade agreements with major trading countries such as India, Australia, Brazil, Chile, Venezuela and Russia, and the trades are settled in Yuan without reference to the US$. However, if a country needed US$s China would most certainly be able to provide them from their US$ trillion+ reserves.

With these bilateral currency exchange agreements in the bag and an existing, large world trade centering on China the capstone of this emerging currency exchange system would be an alternate banking settlement system that is beyond the reach of the USA. The use of the current settlement system by the USA as a means of economic warfare by the USA against Russia will naturally accelerate the development of such a system.

Beijing has promised to make the yuan convertible under the capital account in the zone but has yet to give the go-ahead on this step to institutions and individuals based in the zone.

A liberalised capital account could let foreign investors trade yuan-denominated equities, financial futures and commodity futures - all of which are now off-limits to them. But financial regulators remain concerned over the prospect of a surge in hot money inflows prompted by a fully convertible yuan.

The Shanghai Futures Exchange set up a 5 billion yuan (HK$6.3 billion) subsidiary, Shanghai International Energy Exchange, in the free-trade zone in November last year. Yuan-denominated crude oil futures will be traded on the exchange.

Foreign investors will be allowed to participate in crude oil futures trading as the mainland strives to gain pricing power on the key energy product.

So far China has been pursuing a three track currency program. The first track is domestic and is strongly controlled by the government, but China is starting to allow a degree of private sector influence on valuations as a signal to public sector prices, that is the second track. The third track is Hong Kong, where currency and futures trading is at a premium to prices in China. China could well be moving most of the foreign trade into the public track, but, for now, still has the government to government agreements.
See Renminbi internationalisation and China's financial development by Robert McCauley of the Bank for International Settlements. This was one of the reading assignments in Perry Mehrling's Money and Banking course.

The yuan has appreciated rapidly against the Japanese yen, as well as the Korean won, in sync with the U.S. dollar. If this trend continues, China will face intensifying competition from the highly productive Japanese export machine, and perhaps more so from Korea as well.

Ukraine has Europe's third-largest shale gas reserves at 42 trillion cubic feet, according to the U.S. Energy Information Administration. While for years U.S. oil companies have been pressing for shale gas development in countries such as Britain, Poland, France and Bulgaria only to be rebuffed by significant opposition from citizens and local legislators concerned about the environmental impacts of shale gas extraction - including earthquakes and groundwater contamination caused by hydraulic fracturing or "fracking" - there has been considerably less opposition in Ukraine, a country that has been embroiled in numerous gas disputes with the Russian Federation in recent years.

On Nov. 5, 2013 (just a few weeks before the Maidan demonstrations began in Kiev), Chevron signed a 50-year agreement with the Ukrainian government to develop oil and gas in western Ukraine. According to the New York Times, "The government said that Chevron would spend $350 million on the exploratory phase of the project and that the total investment could reach $10 billion." [...]

Although stability and predictability are not exactly the words that people would associate with Ukraine these days, Western energy companies have continued to maneuver for corporate rights over Ukraine's shale gas deposits. Last fall, officials were in negotiations with an ExxonMobil-led consortium to explore for hydrocarbons off Ukraine's western Black Sea coast.

On Nov. 27, the Ukrainian government signed another production-sharing agreement with a consortium of investors led by Italian energy company Eni to develop unconventional hydrocarbons in the Black Sea. [...]

Royal Dutch Shell is also engaged in the country, having signed an agreement last year with the government of Yanukovych to explore a shale formation in eastern Ukraine. When it comes to Crimea, numerous oil companies including Chevron, Shell, ExxonMobil, Repsol and even Petrochina have shown interest in developing its offshore energy assets.

You hype a new technology, not mentioning that it is actually an old technology, little used heretofore because it is too expensive.

You accept eager, upfront investment money, and use it too buy drilling leases and drill some wells. The drilling companies are happy to do this. They get paid for the work they do, not the success of that work.

You downplay costs and tout your production numbers, which initially are indeed high. You use the high numbers to draw in more investment.

Just as you wells start into decline (about two years) you cash out, selling leases and wells and options on future opportunities. You move your new-found money off shore and out of sight: You have just flipped to the suckers.

If you are a bank, rather than a gas company, you are not done yet. You have helped with steps 1) through 4) and profitted at each stage. Now you sell financial securities on the declining wells. You can do this right up until the bubble pops.

Notice that while cash has been moved from the suckers to the scammers, at every stage real wealth has been destroyed, for net negative gain. At the end the ground water is permanently contaminated in a process that drags on for centuries, even if the well has been properly capped--which is in itself too expensive to ever happen. This loss shows up on nobody's books--certainly not yours. It's all good!

The Ukraine will produce food or it will produce five years of high-price natural gas. It won't do both.

Well, it has certainly supplied lower energy costs to US manufacturers (and more marginally, to consumers), displacing coal and making certain energy-intensive industries more internationally competitive. So it seems they are being subsidised by the investors who are losing money on their gas wells? (And of course, by the incalculable environmental damage.)

It is rightly acknowledged that people of faith have no monopoly of virtue
- Queen Elizabeth II

The frackers were so successful at getting investment money and drilling wells that they really shot themselves with their own gun. They flooded the gas market and drove prices way down below production costs.

The consumers got a temporary benefit, but even conventional drilling could not show a profit at the low market prices.

So then everybody lost money.

Well, not the scammers, at least, mostly not. They had been planning to cash out and run all along, it was just a matter of doing it earlier than expected.

I just don't get the line of argument in this citation, and I don't think that it applies to elites any more than the US public.

The dollar's status as a reserve currency really doesn't provide any significant benefits to the US, or people within it, elite or commoner, in terms of power, economic health, or even ability to engage in "economic warfare." It really is just pieces of paper that people use for trading, and way too much symbology of power is being attributed to the US Dollar, far out of proportion to any accepted political or economic theory of the how the world works -- left, right, or radical.

What do US policymakers at the Fed think about the prospects of the US dollar losing reserve currency status? Good, they say, its about time. There's no benefit to the US from it.

What about closing down bank accounts and such things? That has nothing to do with the currency unit and everything to do with law enforcement agencies and their ability to gain cooperation from their peers internationally. It doesn't matter whether accounts are in dollars, rubles, bitcoins, or gold. If the cops are able to shut you out of your bank, you're going to feel the pinch. And if they can't, which is more frequently the case, with or without a Russian separation, you won't care.

I do agree that the US$ declining in significance as a world reserve currency would be a good thing for most US citizens, as would be a roll back of US foreign bases, provided that there were not a net loss of government spending, which would be a major political problem.

but my own belief is that the US no longer has any good options--whether from the point of view of our oligarchs, or that of the populace.

Even as the US economy is looted out, such wealth as is left depends on the US$ funneling goodies from the rest of the world. Without that we would see, and indeed we are going to see, a decline in material standards that nobody is prepared for nor willing to accept.

While I firmly believe the US could sustain its people without the support of dollar hegemony, I do not for a moment believe that Americans are willing to make the mental, political, and economic readjustments, nor accept the more modest living conditions, that a sustainable path would entail.

Which is to say, imperialism has long been popular across the US political spectrum, and for a reason: People sense that that is where the goodies come from. Obama's New Cold War would be popular too, were the oligarchs willing to throw the masses a few crumbs. That they are unwilling to do this is a measure of just how desperate the US economy has finally become.

I don't think so. Being able to gain lots of cheap and even essentially free stuff from the rest of world has merely displaced domestic labor for the most part. If the US can't immport as much cheap stuff from abroad it will have to make more of it at home, which, due to abundant natural resources, knowledge, and social assets, the US can do quite well. Imperialism doesn't benefit everyone -- it benefits the people who go into that line of work. (And it can be rewarding work in more ways than merely economic, so I am not saying this with cynicism.) But why have working people in Germany prospered so much? Largely because Germany has been deprived -- by the US and Russia actually -- of being able to do the kinds that the US has been able to do, so it made stuff at home and now exports that stuff even with high labor costs.

I am usually one who defends the Pax America project in general, mostly because of the globalization it has allowed and which will probably not continue without out it. But I do think that the US economy, and especially its working and middle classes, will see their prosperity rise quickly and significantly in response to US withdrawal from world governance activities.

The US is in no position to return to making stuff. If nothing else it has a long tradition of incredibly inept industrial management. It also has a poorly educated workforce, on average, and has to import electronic essentials such as rare earths.

Over here, working people in Germany are not the ones doing well from Germany's economic annexation of southern Europe.

The end of the British empire worked out well for the average brit. The end of the Ottoman empire didn't hurt Turkey any. The end of the american hegemony.. Honestly, don't see any mechanisms by which it is likely to do actual americans any harm. Trade? The carrier groups are vast overkill for fighting piracy, and I dont see much likelyhood of state actors taking up sealane interdiction.

I suspect that current management might be better than when the US was economically dominant. Our dominance then was more despite than because of management. Needed financial reforms include corporate governance of publicly traded corporations as well as the roll back of the size of the financial sector to somewhere around a tenth of its current size.

The biggest problem the US and European economies face is distributional efficiency. This is only going to get worse as robotics increasingly diminishes the role of labor in manufacturing. The USA has all of the capital it needs to reform and revise the economy. The problem is that this capital is in the hands of an elite that expects a higher rate of return than is compatible with much of what most urgently needs doing - the Green New Deal. There are two obvious solutions: 1) tax the elites and do the needed spending from those taxes; 2) fund the spending directly by government spending out of newly created money; or some combination. I prefer 1 because it would also address the need for redistribution of wealth.

With a timely and aggressive investment program in a Green New Deal including renewable energy generation and distribution along with electrified rail, energy efficiency and auto transit the USA could both improve social conditions in the USA and help the environment long term. We also need to revise the requirements for manufactured goods, including clothing, and for agricultural practices so as to minimize resource use and maximize useful life of the goods. We could move towards a balanced trade pattern while having the ability to largely be an atarky. What we may not have the stomach for is reining in the elite looters to the degree required for the society to survive.

Obama's New Cold War would be popular too, were the oligarchs willing to throw the masses a few crumbs. That they are unwilling to do this is a measure of just how desperate the US economy has finally become.

I think this reflects the confidence the elite have now in the effectiveness of their capture of government and of their efforts to propagandize the electorate into supporting being ripped off for their lives. Say what you will about the US electorate but they certainly seem to include a large number of very resolute dumb fucks.

In Dnipropetrovsk, remuneration was increased for surrendered weapons of separatist saboteurs. Now, the Kalshnikov gun is estimated at USD 3,000, a grenade launcher or a machine gun - USD 5,000.

"[...] It is not necessary to present identity documents for the surrender of weapons. The remuneration is paid on the spot. Anonymity of the deal is guaranteed," the headquarters reported.

To remind, Dnipropetrovsk region offered a reward of USD 10,000 for each "little green man," caught in Ukraine, as well as USD 1,000 for each returned automatic rifle, at USD 1,500 - for the machine gun, USD 2,000 for a grenade launcher. For each vacated building, handed over to the local authorities and transferred to the guard of the special squadron Donbas of the Dnipro battalion - a reward is USD 200,000.